Frequently Asked Questions

What is the ownership structure for National Public Finance Guarantee Corp.?

National Public Finance Guarantee Corporation (National) is a wholly-owned subsidiary of an intermediate holding company, National Public Finance Guarantee Holdings, Inc., that is in turn wholly owned by MBIA Inc. While MBIA Inc. owns both National and MBIA Insurance Corporation, National is a separate entity from MBIA Insurance Corporation and dedicated solely to insuring U.S. public finance debt. National's insured portfolio includes insurance policies issued by National, the U.S. Public Finance portfolio of MBIA Insurance Corporation that was reinsured by National and U.S. public finance debt that had been insured by FGIC that was novated to National as of August 19, 2013.

For additional information on National, please see National's website, click here.  

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Who are the senior officers of National?

The Chief Executive Officer of National is Bill Fallon, the Chief Risk Officer is Adam Bergonzi, the General Counsel is Daniel E. McManus, Jr. and the Chief Financial Officer is Christopher H. Young.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Where is National domiciled and headquartered?

National is domiciled in New York and is primarily regulated by the New York State Department of Financial Services. The company is headquartered in Purchase, NY and has an office in New York, NY.

For additional information on National, please see National's website, click here.

  

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How many employees does National have?

As of June 30, 2017, MBIA Inc. had a total of 111 employees, 86 in MBIA Services Corporation and 25 in National Public Finance Guarantee Corporation.

  

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Is National now the primary insurer for the portfolio that it reinsured from FGIC?

Yes. The U.S. public finance business of Financial Guaranty Insurance Company (FGIC) that was reinsured by MBIA Insurance Corporation in 2008 has since been novated to National. The Novation Agreement between National and FGIC (effective as of August 19, 2013) replaces FGIC with National as the primary insurer on covered policies as if National originally insured such policies. Claims for payment must be made directly to National, in accordance with the terms of the applicable insurance agreements.

For more information on the FGIC-insured credits novated to National, please see the “Policyholders Documentation" web page on National’s website, click here.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How does the cut-through reinsurance arrangement between National and MBIA Insurance Corporation work?

The reinsurance and assignment agreements between MBIA Insurance Corporation and National Public Finance Guarantee Corporation (National), formerly known as MBIA Insurance Corporation of Illinois, which became effective as of January 1, 2009, enable covered policyholders to make claims for payment directly to National in accordance with the terms of the applicable agreements. To provide additional protection, National has also issued second-to-pay insurance policies for the benefit of the policyholders covered by the reinsurance and assignment agreements. The second-to-pay insurance policies are held by The Bank of New York Mellon as insurance trustee on behalf of the policyholders. These insurance policies provide that if MBIA Insurance Corp. does not pay valid claims to the policyholders and ceding insurers under the applicable policies or agreements, these policyholders and ceding insurers will then be able to make a claim directly against National under the applicable second-to-pay insurance policy.

For more information, please see the “Policyholders Documentation" web page on National’s website, click here.

For additional information on National, please see National's website, click here.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

What is the advantage of the second-to-pay policy?

The second-to-pay policy is designed to further bolster policyholder protection and to provide policyholders that are covered under the cut-through reinsurance agreement with a direct policy claim on National Public Finance Guarantee Corporation (National). We believe that the issuance of a second-to-pay insurance policy by National also mitigates any concerns regarding potentially different treatment of direct policyholders of National and those that are covered under the cut-through reinsurance agreement in a rehabilitation or liquidation situation.

For more information, please see the "Policyholders Documentation" web page on National's website, click here.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

What is MBIA Services Corporation?

MBIA Services Corporation is a direct subsidiary of MBIA Inc. that provides portfolio and operational support services to MBIA Inc. and its affiliates. These services include portfolio management and remediation, claims management, financial reporting, tax preparation and auditing services, information technology, corporate administration and analytical and consultative services in remediation, financial reporting, legal, marketing, strategy and treasury.

Each of MBIA Inc.'s operating entities has contracted for services from MBIA Services Corporation in exchange for a fee.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Can you describe the master services agreement between National and MBIA Services Corporation and how any resulting administrative fees are structured?

National Public Finance Guarantee Corporation entered into a Master Services Agreement ("MSA") with MBIA Services Corporation, a direct subsidiary of MBIA Inc., whereby MBIA Services Corporation provides specified administrative services to National, including accounting, audit and financial administrative services.

Administrative fees due, as a result of services provided from one entity to another, are actual costs incurred and include any fees for third party providers associated with the provision of the necessary services.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Do the company's insurance policies exclude coverage for losses related to terrorism?

No. Financial guaranty insurance policies issued by MBIA Inc. insurance companies are unconditional and irrevocable and our policies would not typically include any exceptions for terrorism, fraud, war, etc., that might be typically seen in a property/casualty insurance policy.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

What are National's claims-paying resources?

National's claims-paying resources are $4.6 billion as of June 30, 2017. National's claims-paying resources consisted of Policyholders' Surplus ($2.6 billion), Contingency Reserve ($0.7 billion), Unearned Premiums ($0.7 billion), Present-Value of Installment Premiums ($0.2 billion), Net Loss and LAE Reserves ($(0.1) billion) and Salvage Reserves ($0.3 billion).

National's claims-paying resources were $4.6 billion as of December 31, 2016. National's claims-paying resources consisted of Policyholders' Surplus ($2.7 billion), Contingency Reserve ($0.7 billion), Unearned Premiums ($0.8 billion), Present-Value of Installment Premiums ($0.2 billion), Net Loss and LAE Reserves ($(0.1) billion) and Salvage Reserves ($0.2 billion).

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How does the company recognize premium revenue?

MBIA Inc.'s insurance companies are required under GAAP to recognize and measure premium revenue based on the amount of insurance protection provided for the period in which the insurance protection is provided by using a constant rate yield method. A constant rate is applied to the insured principal amount outstanding in that given period to determine the premium earned. Thus, a proportionate share of the premium received or expected to be received on a financial guarantee insurance contract is allocated and recognized in the period in which the insurance protection is provided. A constant rate for each respective financial guarantee insurance contract is determined as the ratio of (a) the present value of premium received or expected to be received over the period of the contract to (b) the sum of all insured principal amounts outstanding during each period over the term of the contract. As premium revenue is recognized, unearned premium revenue liability is reduced.

An issuer of an insured financial obligation may retire the obligation prior to its scheduled maturity through legal defeasance in satisfaction of the obligation according to its indenture. MBIA insurance companies recognize any remaining unearned premium revenue on the insured obligation as premium revenue in the period the obligation is legally defeased.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How does the company recognize insurance-related fees and reimbursements?

The Company collects fees and is reimbursed for costs in connection with certain transactions. In addition, the Company may be entitled to reimbursement of third-party insurance expenses that it incurs in connection with certain transactions. Depending upon the type of fee received and whether it is related to an insurance policy, the fee is either earned when it is received or deferred and earned over the life of the related transaction. Work, waiver and consent, termination, administrative and management fees are earned when the related services are completed and the fee is received. Structuring fees are earned on a straight-line basis over the life of the related insurance policy. Expense reimbursements are earned when received.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Why doesn't your refunding activity always track the market and/or interest rates?

While refunding activity tends to be inversely correlated with interest rates, it is difficult to forecast, as issuers also refund for reasons other than lowering their cost of borrowing. In addition, tax laws limit the number of times certain bonds can be refunded. The timing also depends on which deals we have insured and when we become aware of the refunding to process it. For these reasons, we will not always track the market.

For additional information on National, please see National's website, click here.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

What is the limit on dividends that MBIA Insurance Corp. and National can pay?

New York Insurance Law (NYIL) regulates the payments of dividends by financial guarantee insurance companies (such as MBIA Insurance Corp. and National) and provides that such companies may not declare or distribute dividends except out of statutory earned surplus. Under NYIL, the sum of (i) the amount of dividends declared or distributed during the preceding 12-month period and (ii) the dividend to be declared, may not exceed the lesser of (a) 10% of policyholders' surplus, as reported in the most recent statutory statements or (b) 100% of adjusted net investment income for such 12-month period (the net investment income for such 12-month period plus the excess, if any, of net investment income over dividends declared or distributed during the two-year period preceding such 12-month period), unless the Superintendent of the New York State Department of Financial Services approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations.

Due to its significant negative earned surplus, MBIA Insurance Corp. has not had the statutory capacity to pay dividends since December 31, 2009 and is not expected to have any statutory capacity to pay any dividends in the near term.

In the fourth quarter of 2016, National declared and paid a dividend of $118 million to its ultimate parent, MBIA Inc.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How is the statutory capital ratio calculated?

Net insured debt service outstanding divided by the sum of statutory policyholders' surplus and contingency reserve yields the capital ratio.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How is claims-paying resources ratio calculated?

The claims-paying resources ratio is calculated by dividing net insured debt service outstanding by total claims-paying resources. Total claims-paying resources are equal to the sum of the statutory policyholders' surplus plus contingency reserve, unearned premium reserve (after tax), gross loss and loss adjustment expense reserves (which is equal to net loss and loss adjustment expense reserves plus salvage reserve) and present value of future installment premiums (after tax).

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

How do MBIA Inc.'s insurance companies establish loss reserves?

Case basis loss reserves are established on a transaction by transaction basis, by calculating the present value of probability-weighted estimated loss payments, net of estimated recoveries. MBIA Inc. insurance subsidiaries take into account a number of variables in establishing specific case basis reserves for individual insurance policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the issuers of the insured obligations, expected recovery rates on unsecured obligations and the projected cash flow or market value of any assets pledged as collateral on secured obligations, and the expected rates of recovery, cash flow or market values on such obligations or assets. Factors that may affect the actual ultimate realized losses for any policy include economic conditions and trends, the extent to which sellers/servicers comply with the representations or warranties made in connection therewith, levels of interest rates, rates of inflation, borrower behavior, the default rate and salvage values of specific collateral, and our ability to enforce contractual rights through litigation and otherwise. MBIA Inc.'s remediation strategy for an insured obligation that has defaulted or is expected to default may also have an impact on the company's loss reserves.

Loss and loss adjustment expense (LAE) reserves are established by loss reserve committees in each of our major operating insurance companies (National Public Finance Guarantee Corporation, MBIA Insurance Corporation and MBIA UK Insurance Limited) and reviewed by our executive Loss Reserve Committee, which consists of members of senior management. Loss and LAE reserves include case basis reserves and accruals for LAE incurred. Case basis reserves represent our estimate of expected losses to be paid under an insurance contract, net of potential recoveries on insured obligations that have defaulted or are expected to default.

For a complete description of MBIA Inc.'s loss reserving, please click here to access our most recently filed 10-Q and 10-K.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

What discount rates do MBIA Insurance Corporation and National Public Finance Guarantee Corporation use for case loss reserves?

In establishing case basis loss reserves, the present value of probability-weighted estimated loss payments, net of estimated recoveries, is calculated using a discount rate appropriate for the requisite accounting basis. That is, the company reports financial information in accordance with generally accepted accounting principles (GAAP) in the United States of America and accounting practices (statutory accounting) prescribed or permitted by the New York State Department of Financial Services (“NYSDFS”).

In accordance with GAAP, MBIA Corp. and National Public Finance Guarantee Corporation each uses discount rates equal to the risk-free rates applicable to the currency and the weighted-average remaining lives of the insurance contracts to calculate case basis loss reserves. Yields on U.S. Treasury offerings are used to discount loss reserves denominated in U.S. dollars, which represent the majority of the company’s loss reserves. Similarly, yields on foreign government offerings are used to discount loss reserves denominated in currencies other than the U.S. dollar.

In accordance with accounting practices prescribed or permitted by the NYSDFS, MBIA Corp. and National Public Finance Guarantee Corporation each uses a discount rate equal to the yield-to-maturity of its respective fixed-income investment portfolio, excluding investments in cash and cash equivalents and other investments not intended to defease long-term liabilities, to calculate case basis loss reserves.

LAE reserves are expected to be settled within a one year period and are generally not discounted. For additional information about the discount rates used by MBIA Corp. and National Public Finance Guarantee Corporation for loss reserving, please click here to access our most recently filed 10-Q and 10-K.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

What is the accounting treatment for National’s purchase of MBIA Inc. common shares?

Under GAAP accounting, National’s purchase of MBIA Inc. common shares is recorded as treasury stock in the MBIA Inc. and Subsidiaries consolidated financial statements.

Under statutory accounting and New York Insurance Law, National's purchase of MBIA Inc. common shares is recorded as an investment in National’s statutory financial statements and measured at fair value. However, the value of the investment that can be admitted by National is subject to limitation whereby the non-admitted value of the investment is based on the ratio of the statutory surplus of National to the GAAP consolidated shareholders’ equity of MBIA Inc. and Subsidiaries.

During the second quarter of 2017, National purchased 2 million shares of MBIA Inc. common stock. As of June 30, 2017, the fair value and admitted value of MBIA Inc. common shares owned by National was $17 million and $2 million, respectively.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.

Does National hold any Puerto Rico bonds in its investment portfolio?

As of June 30, 2017, National held $136 million of Puerto Rico Sales Tax Finance Corporation (COFINA) bonds (insured by National), $85 million of Puerto Rico Electric Power Authority (PREPA) bonds (uninsured) and $210 thousand of Puerto Rico Municipal Finance Agency bonds (insured by Assured Guaranty Municipal Corp.) at fair value in its long term investments. The Puerto Rico Municipal Finance Agency bonds matured on July 1, 2017. The PREPA bonds have maturities ranging from January 1, 2018 – July 1, 2020. The COFINA bonds have maturities ranging from August 1, 2040 – August 1, 2046.

(Updated as of 06/30/2017)
The information is provided only as of the date indicated and is qualified in its entirety by, and should be read in conjunction with the information filed by MBIA Inc. with the U.S. Securities and Exchange Commission.